Summary:

As rate cut expectations in the Eurozone have been factored in for a few weeks, the market is now reassessing the timing of a rate cut by the ECB as economic conditions improve. In contrast, March's inflation data from Canada has bolstered the argument for a potential rate cut at the June meeting and Governor Macklem emphasized that inflation is still moving in the desired direction.

EUR/CAD 4H

Macro View:

EUR: Presently, market sentiment leans towards the sustained enhancement of Eurozone external imbalances serving as a substantial pillar bolstering the EUR, particularly against other currencies. Investors in the foreign exchange arena anticipate further validation of the ongoing improvement in the Eurozone economic landscape. They await updates on deliberations within the Governing Council, particularly regarding the prospective timing of forthcoming rate adjustments. Absent substantial data setbacks or dovish rhetoric from ECB officials, the EUR is anticipated to maintain its resilience relative to other G10 currencies.

CAD: March's inflation data from Canada has bolstered the argument for a potential rate cut at the June meeting. Core inflation has dipped below 2% on a 3-month annualized basis. Unless there are unforeseen developments in the April inflation figures, a rate cut in June seems highly likely. Governor Macklem emphasized that inflation is still moving in the desired direction, aligning with the Governing Council's preference for sustained evidence of downward inflation momentum. Furthermore, recent GDP and retail sales figures suggest weakness in Canada's economy, which could further incentivize the BoC to consider an earlier rate cut.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/CAD Current Retail Long/Short Position

The DXM shows that 19.5% of traders are bullish, while the remaining 80.5% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

EUR Futures’ seasonality movement

The seasonal pattern for the EUR suggests bullish momentum in the near term.

Sources: Prime Market Terminal

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